The Effect Of Inflation On The Economy - 822 Words

Some variables in Economics are very close related to each other. In many cases, the combination of these variables can cause an unexpected effect on the economy. One of these examples can be observed using the Phillips Curve. This curve can be used as a tool to represent the inverse relationship between inflation and unemployment in the short-run. In order to comprehend this inverse relationship, we must first know what inflation is, how we define unemployment, and how these two variables are connected using the Phillip Curve. If we understand the meaning of each one of these variables in the economy, it will be easier to comprehend the logic of a short-run tradeoff between unemployment and inflation. Inflation, in the economic, can be described as the sustained increase in the level price of goods and services over a period of time. The effects of inflation can be diverse in the economy. It can affect the economy in positives and negatives ways. One of the negative way in which inflation affects the economy is that it increases the opportunity cost of holding money, in others words, it decreases the real value of money. A high and prolonged rate of inflation can also discourage saving and investment. Inflation is told to occur when there is an excessive increase in the money supply. Although, an excessive money supply does not necessarily causes inflation. Among the positive effects of inflation in the economy, we can talk about that it allows the central bank toShow MoreRelatedThe Effects Of Inflation On The Economy1572 Words   |  7 Pagesexactly inflation is, what its effects on an economy are, and what the root causes of inflation are. Rampant inflation is very damaging to an economy and can have long lasting effects on the country and the World financial markets. Because of globalization the world is more interconnected than ever and in turn no economy is fully insulated from disruptions to the global markets. The difference between inflation and hyperinflation is also discussed. As the title states, inflations damaging effects on savingRead MoreInflation And Its Effect On The Economy1197 Words   |  5 PagesIntroduction Inflation is an aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, every dollar of income buys fewer goods and services than before and reduces the purchasing power of money. Inflation doesn’t always mean all prices are rising, and during periods of rapid inflation some prices may be constant and others may fall. It is measured by the Consumer Price Index (CPI), the two types are demand-pull and cost-push, and affectsRead MoreInflation And Its Effect On The Economy1217 Words   |  5 PagesIntroduction Inflation is another aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, each dollar of income will buy fewer goods and services than before and reduces the purchasing power of money. **Inflation does not mean that all prices are rising and during periods of rapid inflation, some prices may be relatively constant while others may fall. Almost all prices are set by supply and demand, and if the economy experiences inflationRead MoreEffects Of Inflation On The Economy1212 Words   |  5 Pagesinfluences that cause inflation such as energy, food, commodities, and other goods and services. The entire economy is affected by rise of the cost of living. It also affects the cost of operating a business, borrowing money, mortgages, corporate and government bond yields, and every other aspect of the economy. There are several advantages of inflation in the economy. Some include moderate rates of inflation which allows price s to adjust. This is considered a sign of a healthy economy. With economic growthRead MoreInflation And Its Effect On The Economy1200 Words   |  5 PagesIntroduction Inflation is another aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, every dollar of income will buy fewer goods and services than before and reduces the purchasing power of money. Inflation doesn’t always mean all prices are rising, and during periods of rapid inflation some prices may be constant and others may fall. Measured by the Consumer Price Index (CPI), the two types are demand-pull and cost-push, andRead MoreInflation And Its Effect On The Economy1617 Words   |  7 PagesInflation is defined as the sustained increase in the general price levels of goods and services over a period of time. When the price level rises, each unit of a currency purchases fewer goods and services, reflecting a reduction in purchasing power per unit of currency. Every economy experiences inflation through the business cycle, which is defined as the natural fluctuation in economic activity between inflation (expansio n), and recession (contraction). Inflation is not necessarily a negativeRead MoreInflation And Its Effect On The Economy1532 Words   |  7 PagesInflation is the rate in which the prices and services are rising above zero percent, which involves a declining value in the power of currency. While deflation is when the inflation rate goes below zero, making it a negative inflation rate. â€Å"Inflation has a direct impact on the investment environment; a rising or declining inflation rate can shift the balance of investment returns between stock, bonds, and other alternatives† (Little, 2010). An economy having zero inflation will eventually resultRead MoreInflation And Its Effects On The Economy2825 Words   |  12 PagesGlobal economy has been changing significantly in past several decades which has been affected by the goods and services in the national borders leading to the movement of the country up and down in the international system economically. The economy of the co untry is strictly hit by two important factors that are: deflation and inflation. Deflation can be defined as the decrease in the price of the goods or services provided. In the other hand, inflation can be defined as the increase in the priceRead MoreThe Effects Of Inflation On The Economy1129 Words   |  5 Pagesago, many economists did not believe that inflation –the escalation of prices that makes the money to be less valuable in the market- (Newnan, Eschenbach, Lavelle, 2014) could rise together with unemployment because they stood in the wide belief of a direct relation between economic growth and employment. That is to say that when the nation’s economy is in its healthy moments, the rate of unemployment will decrease, and in the other part the inflation will increase because people have more incomeRead MoreThe Effects of Inflation in Malaysian Economy Essay645 Words   |  3 PagesInvestment will drop because inflation. There may be greater uncertainty for both firms and households when inflation. Firms become unsure of what their costs will be and what prices they will receive from selling their products in the future so may be reluctant to invest. The good timing for company to grow their business is when the economic conditions is at low inflation (Inflation, n.d.). This is easy for businesses to have a well planning for their activities and investments. Most of the time